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Saturday, December 26, 2009
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104 comments:
I have been reading the blog for a couple of months now and I have to say there are some really informed people here. But with all the great stuff written I am having a hard time getting everyone's opinions of how they feel the market is going (other than a couple of more outspoken few).
So I was wondering if perhaps today we can just do a quick recap how each person feels on the northern VA housing situation and why they feel that way. It will be a great single place to list our opinions to head into the new year.
So feel free to include your opinions on any or all of the following:
Good time to buy or not, how prices will change and by how much, what will happen to interest rates and will it will impact prices in this area, what areas are good to target, how you feel the NOVA area will change as a whole, etc.
So bring it on!
I look forward to any disagreements that people may have on what I write below. I am fairly new to the market so if there is anything I am missing or you feel I may not know please bring it up. So let's get to it:
I do not feel that overall it's a good time to buy. The 8k tax credit combined with an inordinate amount of FHA loans has kept the market from falling in this area as much as it should. There are a large number of foreclosures yet to hit the market which will also put downward pressure on prices. Plus once the FHA pool runs dry it will be very difficult to sell homes in an area that requires new buyers (the bulk of the market right now) to have 50 to 100k or more in the bank.
Due to the above I feel prices have another 10-15% to drop in the areas that are still highly inflated, and will probably drop by around 5-7% in the area as a whole.
Interest rates will probably stay around the same (maybe go up by .5%) over the next year so it will have a negligible impact on prices.
I have not studied the area enough to yet know what are good areas to buy in.
I think NOVA will finally start to settle out a bit after being the highest growing area for nearly this entire decade (at least that was the case in Loudoun). This growth lead to an enormous strain on the infrastructure, which created a area of high traffic jams and lack of reliable public transportation that would be befitting of a metro area that has grown around areas like Fairfax and Loudoun. As things settle out a bit we should see people have more reasonable commutes or at least the option of a train to get to work, which will help the strain on DC jobs.
Interesting NYT article on how low rates are affecting seniors (and other investors).
Unfortunately no hard data on how many seniors this affects. But I recall people being skeptical many seniors still invested so conservatively so FWIW.
Beer Chugger,
I suspect the $8k is mostly irrelevant this time around because I think those who thought it was a valid reason to buy a home bought in 2009. I don't think FHA loans will ever end but will probably have higher fees making more people question getting one.
Interest rates do seem to be going up and should hit 6% in 2010 as predicted by Freddie Mac. The big question is how does the Fed react to that. Does the Fed start some new program to get rates down to ridiculous levels or does it finally allow us to live in a market system where investor demand for Treasuries affects the yield.
Another negative factor will be in Feb 2010 when assessments are released in Fairfax (and I assume around then elsewhere). In Fairfax I think most homes will see a lower assessment. I think people might have some limit on how much over or under the assessment they will bid so if the new assessment is lower that affects what they will bid.
I think that we are going to go sideways for a number of years. We have to get past this recession and over the fear factor (both individuals and lenders, etc.).
Whether to buy now or not? It depends on the individual transaction. I can't see how anyone can say "it's a bad time to buy" without knowing the particulars. In general? There is no "general". I think the interest rates are terrific now and can only go up.
Will higher rates cause prices to drop? It depends on how high they go and over what time period. I have no guess as to those questions. My bet is that the 5% mortgage is going to look like the deal of a lifetime.
Lots of major transportation projects are underway in NOVA. As far as what areas to target; where do you work?
The Anonymous,
[From a few days back]
I understood you were not attacking me with the glug, glug, glug comments. I just find it bizarre the few people on here who think the FDIC etc will fail get so many attacks from you but someone like Robert remains unscathed when he predicts a million new jobs in the DC area each month (hyperbole).
btw,
this spring should be interesting. I expect a frenzy at certain price points.
TBW said:
"Unfortunately no hard data on how many seniors this affects. But I recall people being skeptical many seniors still invested so conservatively so FWIW."
TBW, I don't have #s either, but I think people who are retired (as opposed to those nearing retirement or younger) do have a lot of CDs and other safe investments. I know that what the story reported is certainly true for my parents -- that they are earning next to nothing on their savings and investments. It's been a sucky decade for savers of all ages - you can invest safely and lose out to inflation (even low inflation) or you can take the risks advisers have always said you have to take to beat inflation - and lose 60% or more of your investments on global stocks or basically break even after 10 years where you should have been earning 6-8% per year per historical averages.
Beer Chugger, interesting questions. I'm not good at predictions - I feel as though, to have any idea, I ought to have a big regression model with lots of data, which I don't have - so I'll just take a complete shot in the dark for the fun of it.
Because Fed decisions on interest rates are not directly connected to long term interest rates that are involved in mortgages (which are more a function of bond prices), I don't think the Fed's pushing rates up a little will have much effect on 30 year rates. But their not buying up all the securities? I agree with those who think this will push rates a bit higher.
We still have tons of delusional sellers in the area, at least in certain price ranges. If you look at detached houses in McLean, for example, between $800K and $1.5 mill. (that's a range frankly.mls allows you to examine--I'd like to narrow it down further but I can't), more than half of the available houses have been sitting for 100+ days. If sellers aren't sufficiently motivated by their personal circumstances (e.g., divorce, job change) to move, and they don't interpret 100 days on the market as a signal that they are overpriced), then I don't think they are going to respond to more subtle clues like interest rates' creeping upward.
So I do not expect interest rate increases, if they occur, to have much effect on this price range.
During the third quarter, GMP increased by 1.6 percent in the Washington region, up from 0.6 percent in the second quarter of 2009.
Let's use some conservative estimates:
Metro area GMP annualized growth = 6.5% - fact from above. The 1.6% is absolute, not annualized.
NOVA = 45% of economic output, DC 25%, and MD 30%.
Suppose MD+DC is growing at TWICE the national rate of 2.2%.
If 55% of the local economy is growing at 4.4%. The remaining 45% must be growing at 9%.
The NOVA economy is growing at 9% a YOY clip and accelerating.
Tell my why I am wrong.
Beer Chugger,
Here is what I believe where we stand,
- There is no reason to buy right now. Renting is lot cheaper and it makes no financial sense to own an overvalued asset.
- If you do buy, be prepared to lose your down payment. And if you have to move in the near-term for any reason, you are most likely screwed.
- Housing is on life support right now and market is manipulated because of FHA, MBS purchases, Foreclosure moratoriums and stimulus jobs.
- Higher interest rates will not be good for prices.
- Private lending will not support current prices as they are inflated by any fundamentals you pick - wage adjusted, price/income, price/rent etc.
- I think many areas here are overvalued more than 20%. I don't expect prices coming down by that much in nominal terms. Most likely we see something like 10-12% depreciation & rest adjusted by inflation over the years.
beerchugger -
I think you've made up your mind. I suspect you've been reading a lot of the bearish articles.
I joined this board in March. My interest was piqued by the drop in inventory. Simple supply and demand as I saw it. Low inventory would result in rising prices. I was right.
Since March the bears have been consistently wrong. What they've been wrong about is demand and job growth. Yes, we did have a lot of foreclosures and short sales (as predicted by the bears), but they were gobbled up and then some as the year unfolded. Current inventory suggest further price increases. At this time last year at this time we saw 12,000 houses for sale in NOVA and we ran up a 20% increase in prices. Now inventory is 6.000. Demand is increasing as jobs are created and people move to the area. Forget about what you hear that "everyone that wants to buy has bought.". They don't account for job growth and relocation.
$8k is total bullshit. It's impact on NOVA is minimal because (1) it isn't much $$$ on most transactions, and (2) everyone that was impelled to use it already has.
Still, there are tiers to the NOVA market and all of them will not perform identically. Low-tier will continue to be on fire (buy). The middle tier $500k-$800k will be hot (buy). But, if you are a $1M+ buyer, you should wait until inventory drops below 6 months(hold).
I encourage you to go back and read my posts. Yes, I missed a few, but compare my predictions with others.
best of luck.
Robert says"$8k is total bullshit."
Then why did NAR fight so hard for it?
"WASHINGTON -- Sales of new homes plunged unexpectedly last month to the lowest level since April, a sign the housing market recovery will be rocky and heavily dependent on the generosity of Uncle Sam.
The 11 percent slump from October's pace shows that consumers are taking their time following an extension of a deadline for first-time buyers to qualify for a tax credit. The incentive was set to expire at the end of November, but Congress pushed back the date to April 30 and expanded the program to include current homeowners who relocate. "
OMG!!!
Lowest level since April. Hard to sell stuff when there is no inventory and winter is fast approaching.
I wouldn't start celebrating just yet.
pat -
I think it will have a minimal influence on our market going forward.
It seems like the market here is so spotty. There are many houses in the $1+ range that are just sitting there for a long time, like someone else said. I think those people need to understand that their prices are just too high and lower or sit.
The lower end of the spectrum (less than $500k) I feel is still too overpriced. I have been looking at homes since we moved here, about 6 months, and basically there are many shacks for $300k, either people around here are crazy for property or prices still need to decline.
Va_Investor said...
"this spring should be interesting. I expect a frenzy at certain price points."
Can you be more specific, and give reasons why? It seems like there is a frenzy "at certain price points" every year - the real key is knowing what those price points are.
Ace said...
"detached houses in McLean, for example, between $800K and $1.5 mill. (that's a range frankly.mls allows you to examine--I'd like to narrow it down further but I can't)"
You can, but you have to type it in manually to the address bar rather than using the drop down. Search for the 800k to 1.5 mil like normal and then change the 1500K in the address bar to the value you really want.
Hi Robert,
When I came onto the board it was with a strong feeling that these prices just do not make sense in this area. And your posts have by far been the source of the "bullish" side that I have on the market, and I appreciate the effort that you put into them. I have to admit at points your posts were so factual and backed up with articles that I nearly went that way. But there are some issues with what you write that I just cannot seem to overcome. So please help me understand what, in your opinion, I am seeing wrong here.
"I think you've made up your mind. I suspect you've been reading a lot of the bearish articles."
I just read what is out there, so if you have articles relating to the bullish market I would LOVE to see them!
"I joined this board in March. My interest was piqued by the drop in inventory. Simple supply and demand as I saw it. Low inventory would result in rising prices. I was right."
I totally agree with you on the inventory issue, and that by far is the strongest evidence I have on why prices will start to rise again. But, and I am not totally sure on the numbers, could one not have made the same comment during 2005-2006 that since inventory was low the market would continue to rise? And we see how that turned out.
Plus wasn't a large part of the reason we have this current economic (and housing) crisis is due to poor leveraging by banks and individuals. So how does allowing most of the homes sold to people who only put down 3.5% fix the fundamentals of this problem? Are we not doing the exact same thing as before and allowing prices to stay sky high by allowing easy lending with nearly no down payment (in relation to the 20% that used to be required)?
"Since March the bears have been consistently wrong. What they've been wrong about is demand and job growth. Yes, we did have a lot of foreclosures and short sales (as predicted by the bears), but they were gobbled up and then some as the year unfolded. Current inventory suggest further price increases. At this time last year at this time we saw 12,000 houses for sale in NOVA and we ran up a 20% increase in prices. Now inventory is 6.000. Demand is increasing as jobs are created and people move to the area. Forget about what you hear that "everyone that wants to buy has bought.". They don't account for job growth and relocation."
I totally agree that the low inventory could be a reason for a rising market. But I have been reading many articles about a "shadow inventory" that demonstrates that many homes are being kept off the market due to price stickiness of individual sellers who cannot (or do not want to) take the hit of selling; and even larger are the banks holding back foreclosures due to them not wanting to take a loss on their Balance Sheets. So you make a strong point, but does the above point not make you wonder why inventories are so low?
And regarding your great points on the job market, the only thing I can say is that as someone who consults out as a CFO to government contracting companies I have seen directly how strongly the stimulus programs and current government spending is propping the area up. But I think we all agree that at some point, fairly soon even, the government has to stop this enormous deficit spending. When this happens what new jobs to the area will cover the enormous loss of income that NOVA will see? If anything I can envision that just how the dot.com bust hit this area very hard in the early part of the decade, the government cutting spending will be even worse.
"$8k is total bullshit. It's impact on NOVA is minimal because (1) it isn't much $$$ on most transactions, and (2) everyone that was impelled to use it already has."
I would agree with you on this one, but as someone who assists with a lot of the people who get jobs in the area, and look for homes, I can tell you that I know quite a few first time home buyers who have jumped at the chance to purchase and get 8k given to them for the deed. Ever see the stampedes at Wallmart to save fifty bucks on a VCR? I think you may be underestimating people's desire to be given $8k to buy at nearly historic low interest rates to buy despite high prices.
"Still, there are tiers to the NOVA market and all of them will not perform identically. Low-tier will continue to be on fire (buy). The middle tier $500k-$800k will be hot (buy). But, if you are a $1M+ buyer, you should wait until inventory drops below 6 months(hold)."
Your numbers above are exactly why I have a problem in this area. How can the low tier be under 500k? I mean what makes this area so good that a "lot tier" would be considered under half a million dollars? I mean areas that are fairly far from DC still sell for ridiculous prices that the economics of the area do not seem to comfortably support.
I mean let's look at teachers' salaries for example, one of the largest group of civil servants an area can have. An average five year experienced teacher (meaning educated and relatively tenured) will make $47.5k. So a teaching couple in Fairfax will make $95k. According to the articles I read the best way to buy is "triple" ones annual salary to determine a good house price. That means that two teachers at around their late twenties early thirties should purchase a home around 285k. And while I know there are probably a couple of homes out there at that price range, really who buys a home at that price range? Maybe you could get a townhome if you look for a while? Not even sure...
So while the prices seem to be sticking around, many in the area do not have the means to support these insane prices. If anything it's just the opposite, people with good jobs have to really stretch themselves to get into a home and that is really not fundamental for an area as large as this is. There should be a decent place for the ordinary people of an area to live and purchase a home, and for whatever reason this area does not seem to support that.
So I feel until the home prices seem to fit the area a little more that simple economics shows that at some point things have to come down to reality.
"I encourage you to go back and read my posts. Yes, I missed a few, but compare my predictions with others."
Your posts are always very informed and backed-up and I have read every one with much interest. But it's hard to read everything written on the board and price meal put it together which is why I was hoping everyone would take a quick minute to put it on one area.
Please let me know what you feel I have wrong on the above, I never go into anything with a closed mind and would love for you to make me feel differently. I have a sizable down payment waiting and would love to use that bad boy to finally buy my first home. But I just cannot do that while I feel the fundamentals of this "housing recovery" are based upon stimulus programs and price stickiness.
I look forward to your (and others) responses!
sehrwunderbar said...
"The lower end of the spectrum (less than $500k) I feel is still too overpriced. I have been looking at homes since we moved here, about 6 months, and basically there are many shacks for $300k, either people around here are crazy for property or prices still need to decline."
This is exactly how I feel. As someone fairly new to this area these prices just do not "make sense" to me...
Va_Investor said...
"Lots of major transportation projects are underway in NOVA. As far as what areas to target; where do you work?"
I have clients from Herndon to Tysons. But you never know where the next client will come from. :)
Robert gets mad when people post national articles and stats to support their opinions, but then he uses numbers for NOVA that include the craziness that went on in Prince William county (and other lower priced areas) over the past two years. I can guarantee you there hasn't been a "20% increase in prices" anywhere I've been looking this year.
It really depends on your price point more than anything else right now. Personally I feel that the 600k+ price points have a lot of risk and that now is still an historically expensive time to buy with much more downside risk than upside in the near future. It's cheaper than last year, but will almost certainly be just as cheap next year and is likely to be better.
Spider,
Thanks for the response. It sounds like you and I are on the exact same page!
Jeremy said...
"Robert gets mad when people post national articles and stats to support their opinions, but then he uses numbers for NOVA that include the craziness that went on in Prince William county (and other lower priced areas) over the past two years."
Well I just really laid it out there, in detail for him to pick apart. I am looking forward to his, and hopefully others responses/critiques.
beerchugger said...I think we all agree that at some point, fairly soon even, the government has to stop this enormous deficit spending. When this happens what new jobs to the area will cover the enormous loss of income that NOVA will see? If anything I can envision that just how the dot.com bust hit this area very hard in the early part of the decade, the government cutting spending will be even worse.
There are two things happening simultaneously - a stimulus bubble and a massive expansion of the federal government - health care, energy, finance, really everything. The first will end. The second will endure. Will there be a hiccup when the stimulus ends? Sure.
How long do you think the unemployment situation is going to be with us? Can you see Obama and the Dems slashing budgets and firing government workers? Or will the order fewer airplanes, new copiers, and cut travel budgets?
It looks like the trillion dollar health bill is going to pass. Experts will argue about the new bureaucracy created, but it will be centered at Health and Human Services. I think it will be a small army 5,000-10,000 well-paid bureaucrats running it. (These jobs doesn't exist yet)
Cap and Trade should require another army of inspectors and traders of carbon permits. (These jobs don't exist yet)
The takeover of the banks and finance sector is nearly complete. The impact on Washington is permanent.
Politics is key. The danger is less that Obama loses in '12, but that the Dems lose the House and/or the Senate.
That said, this thing could all come crashing down. These are unprecedented levels of debt. It is all an experiment. So, I do worry.
Robert said...
"How long do you think the unemployment situation is going to be with us?"
I have read from 2013 to 2016. But wont it hurt your position on the nova housing market as unemployment eases and jobs spring up all across the nation. I mean people are somewhat forced to move here to find jobs and are therefore forced into this ridiculously priced market. But once there are options, who would move here to get a job where they have to pay 500-800k for a home when they can get a similar job around the country and pay 250-400k for their home?
"Can you see Obama and the Dems slashing budgets and firing government workers? Or will the order fewer airplanes, new copiers, and cut travel budgets?"
Not sure where you are coming from here. The deficit is currently running at 1.7 trillion dollars or $1,700,000,000,000.00. I know, its freaking huge.
I had no idea that the government had so many copiers and airplanes that they could just cut them out and they would reduce spending by that number. Plus at some point we have to start to pay back the $12 trillion dollars the government owes. That is a whole lot of travel budget...
Why should two teacher's in their 20's making median income be able to buy more than a median priced home as a FIRST HOUSE?
96K equals 8K per month. 30% of that is about $2,400 PITI. I don't have a calculator in front of me, but I doubt that wouldn't cover a median priced house.
So, the basic argument is that the median is too high. I saw a chart on bubble meter the other day that suggests we are exactly where we should be. I think gen Y expectations are too high.
...and I predict the frenzy to encompass anything under 400K.
"Sticker shock" upon relocating to the DC area has been a fact of life for decades (or longer).
Spider-
A couple of times you have said VA has not acted differently during the bubble. I disagree, while the shape of the bubble has been very similar if you notice VA still has kept more bubble gains since 2000 than any other city in CS. I assume this is because the job market is strong here so there is less distressed inventories.
Thanks for the tip, Jeremy. I see also that frankly has added more choices to the menu.
Beer Chugger said:
"...I totally agree that the low inventory could be a reason for a rising market. But I have been reading many articles about a "shadow inventory" that demonstrates that many homes are being kept off the market due to price stickiness of individual sellers who cannot (or do not want to) take the hit of selling; and even larger are the banks holding back foreclosures due to them not wanting to take a loss on their Balance Sheets. So you make a strong point, but does the above point not make you wonder why inventories are so low?..."
I like your thoughtful posts (you must not be chugging much beer after all, or else maybe I need to start chugging).
One response to "are low inventories inevitably going to lead to higher prices?" is that this question focuses only on the supply side. As you imply in some of your comments, the demand side is equally important - and that demand can affect supply, i.e., if people don't want to "give away their houses" (i.e., they don't think there is sufficient demand at the price they want to receive) or banks don't want to take a big hit, they hold homes off the market as long as they can.
Right now I think we have a lot of conflicting information about demand. Factors that push it upward:
1) relatively (to other metros) good employment situation and a higher # of relatively high dual income households, which enable more households to afford higher prices
2) the $8K buyer bribe
3) the govt's buying of securities to keep interest rates extremely low relative to historical rates
But these factors are important and work in the opposite direction:
1) incomes still aren't high enough to support prices in many areas (and there are a lot of single income households as well), and recent wage and salary increases have been low
2) selling prices are out of line with rental prices in many areas (if our employment and income situation is so spectacular, rents would have moved up with home prices, wouldn't they?)
3) the easy money loan standards have changed; a lot of people cannot qualify for the houses they want using conventional standards. These people in the recent past pushed prices way up by their being willing to bid well above their ability to pay but this should not be a factor going forward.
4) the governmental stimuli will not last indefinitely and uncertainty about it will push some people to buy in the short term, but there may be a dip longer term as the stimuli go away or are changed.
5) I still don't know how much builders, remodelers, etc. have adjusted to the "new reality." If they continue to push for high prices (in part because materials costs remain high) and get them because others have left the industry, reducing their competition, then prices could remain high. If instead they find ways of producing what people want more cheaply, then buyers will turn to them, and sellers of older homes needing work will have to come down in price if they want to sell. On the other hand, in desirable areas, buyers may have to pay a bit more for the handyman specials because of competition from other buyers and may be more willing to do so because the upgrades they plan to do will cost them less.
oh yeah, how could I forget my tired old 6) move up buyers have much less wealth to use to buy than 5 years ago. A lot of prospective buyers have seen their own homes decline in value, reducing what they can spend on the new house once theirs sells, AND they have lost a lot of money in the stock market, reducing not only current income or wealth, but also their retirement income. A responsible (rather than an "oh what the he*l, the bank says we can afford it") buyer in his/her 40s or 50s fears locking into a high mortgage payment and high real estate taxes that is a stretch on current income but may be a disaster after retirement, esp. if life happens (e.g., an extended illness, need to care for a family member).
Jeremy, I just tried your suggestion, e.g.,
http://franklymls.com/default.aspx?m=R&l=900K&h=1200K&s=arlington+detached
but rather than getting houses from 900 to 1200, the results are houses 125 to 600. This happened with two different browsers.
Rent increases?
Supply and demand. Many renters became owners. We had a ton of new inventory come on line - especially after 2005 and 2006, when many would-be condo's became rentals.
We had a great deal of "false demand" from would-be investor's expecting to flip. Builder's were either too greedy or too stupid to see this happening and continued to build. Don't expect a repeat until this lesson is forgotten. 15yrs?
Look for increases as the supply is soaked-up. There will be a shortage soon enough, if history repeats.
Va_Investor said...
"Why should two teacher's in their 20's making median income be able to buy more than a median priced home as a FIRST HOUSE?"
So a 285k home is a median home in Fairfax county?
But I think we both agree that your next statements are what we are really talking about...
"So, the basic argument is that the median is too high. I saw a chart on bubble meter the other day that suggests we are exactly where we should be."
It is these "charts" that cause the trouble. Why didn't those charts tell us in 2006, 2007, or 2008 that things were about to implode in this country?
"I think gen Y expectations are too high."
Now here is where I disagree with you. When I grew up the motto was "buy a home at two times your income". That combined with 20% down was considered the "proper" way to do it. How in the hell that turned into some calculator that shows that if you live on only necessities you can scrape by, combined with only 3.5% down is causing this entire country fits.
We are again over leveraging a market in housing that was so broken that it caused the worst recession since the Great Depression. If we do not get back to normal at some point soon we are in for another big hit...
So no, Generation Y does not have it wrong. If they work hard and do the right things they should be able to afford a home at two to three times their income. They should be able to provide their kids a house to live in without scraping by from day to day.
I mean could you imagine returning to a time where one parent worked, another stayed home to take care of the children, AND they could own a home? That would be good times my friend, good times indeed...
Hi Ace,
I like your thoughtful posts (you must not be chugging much beer after all, or else maybe I need to start chugging).
You must just have caught me in a rare dry spell today... :-)
As far as your post great stuff man, thanks for sharing. It sounds like you may still be on the fence and want to see how things fall over the next few months before making up your mind.
Let me know how you feel as time goes on, I am curious to see how as things unfold over the next several months it may change people's stances...
Va_Investor said...
"Look for increases as the supply is soaked-up. There will be a shortage soon enough, if history repeats."
So you are not concerned about the "shadow inventory" or upcoming second round of foreclosures?
Look, you are one of the few well informed bulls I run across and I want to soak up all the information that makes you so. :-)
beerchugger,
You probably already know my predictions.
I think the futures market has it about right. Wildly exaggerated seasonal swings for the next 2-3 years as inflation ticks away at the disparity between prices and affordability that you see.
At this point EVERYTHING depends on what market segment and price point and location you are interested in.
Townhouses are going to return to last winters lows and perhaps dip lower as SFH availibility and lack of additional $8k buyers saps all demand from that product.
SFHs in "good" areas for under $375k will find plenty of support so long as interest rates remain under 6%. That opening tier of the SFH market is attainable even to two teachers or one person with an excellent job.
Over $400k? Still has a lot of delusion. That's the big question mark. It could go any which way. It depends on the actual duress of sellers, their willingness to accept lower offers, whether short-sales get expedited. But be careful what you wish for. Expedite short sales, and it will just make them no longer be 10% off deals. REOs these days may or may not be sufficiently discounted to account for the additional work to be done. Some are, some aren't. There is definitely the potential there for a 10% decline, but whether it will happen in nominal terms is an open question, and depends strongly on the actual demand/supply curve.
It will happen. It has to for all the reasons you point out. But it may take 5-10 years of inflation to get there.
The difficulty in predictions for anything above the opening tier is that they are NOT income dependent. They are wealth/equity dependent. It's easy to say that THs should be available to blue-collar workers and small SFHs should be available to one-income families with one slightly above median job. Because those are going to be financed out of income. But anything above that takes either higher than median income or move-up equity or considerable savings. How the heck do you predict those? Supply and demand and days on market.
Be careful what you wish for, the lower prices go the fewer sellers will be willing to sell, rather than stay put. Inventory may look slim now, but it could get even thinner. If you're willing to rent for another 5 years, you may finally see the end of this downturn.
In any case, there's no rush in any market segment that I can tell. As prices ticked up in the bottom tiers this spring, the organic sellers and flippers came out of the woodwork. Any price uptick will be met with more supply for a good 2-3 years to come. No worries. There will be no sustained V.
Merry Christmas all!
Beer Chugger,
We are going in circles here. Median can afford median. Period. You and others just don't think that a median priced house is nice enough or close-in enough or in the best school district. Do you really believe that median should be able to purchase more?
This is the highest income County in the entire country. You could easily go out a ways and get a nice house. The problem is that many of the gen Y's expect to get the picket fence et al right out of the box.
I can tell you first hand that FHA was fully available in 1980 and before. I can also tell you that ARM's and neg am loans (and 5% down and "decorating allowances" of 5% - taking care of any DP needed) were available going back to the early '80's. The "rule of thumb" used to be 2.5 to 3X income, but rates were more than double what they are today. Underwriting ratio's were 28/36 30yrs ago and have always been higher for FHA.
Median buys you a middle class house in a middle class neighborhood (parts of Falls Church, Herndon, Burke, Sterling,S. Reston and plenty of other places). I would say that Oakton, McLean, Great Falls, Potomac, Chevy Chase, Bethesda, North Arlington, Vienna, Dunn Loring, etc are not middle class.
"Can you see Obama and the Dems slashing budgets and firing government workers? Or will the order fewer airplanes, new copiers, and cut travel budgets?"
Not sure where you are coming from here. The deficit is currently running at 1.7 trillion dollars or $1,700,000,000,000.00. I know, its freaking huge.
I had no idea that the government had so many copiers and airplanes that they could just cut them out and they would reduce spending by that number. Plus at some point we have to start to pay back the $12 trillion dollars the government owes. That is a whole lot of travel budget...
We will never pay back the $12T.
As far as the deficit, it'll be (1) tax increases and (2) growth in tax receipts. There will be plenty of posturing by Obama, less by Congress, that they will cut spending. Who thinks otherwise?
Take a look at these two items:
Democrats made no apologies for all the largesse, saying that domestic programs were starved under eight years of President George W. Bush.
“I see these bills as an opportunity to reverse years of neglect — neglect to our roads and bridges, neglect to our lower-income neighbors and friends, neglect to our education system, neglect to our veterans,” said Rep. Jim McGovern (D-Mass.)
Starved? Are you kidding me? But, philosophically, this is how they feel.
The measure rejected most spending cuts suggested in May by Obama.
The latest from the Democratic Congress:
Wall Street is widely blamed for causing the current economic mess, so why not let them pay for it? The idea is to impose a 0.25% tax on the value of stock transactions, and on a variety of derivative transactions. Indeed, the bill introduced last week in the House by Rep. Peter DeFazio (D., Ore.) and others is called the "Let Wall Street Pay for the Restoration of Main Street Act." Sen. Tom Harkin (D., Iowa) plans to introduce a companion bill in the Senate. Proponents believe the legislation could raise $150 billion per year.
"housebuyer said - while the shape of the bubble has been very similar if you notice VA still has kept more bubble gains since 2000 than any other city in CS."
housebuyer,
My point has always been that - overall trend in NoVA has been similar to the national trend - the slope of correction was definitely different across the metros. As national downtrend resumes, so will our regional correction - I don't see any escape from that.
The fact that our region is still holding to more bubble gains than other regions (isn't a thing to celebrate) means it has more risk to downside than places like NV, FL or CA. The government presence has slowed down the inevitable price correction, which makes this a riskier region to buy now.
bubblemeterr has some great graphs.
vegas almost fully corrected.
DC still lots of air.
Spider-
As Pat said there are a lot of areas that are probably nearly fully corrected. I also agree that prices will probably trend down (although I think ~10%, which I think is far less than you think.) Also just because we have more bubble gains doesn't necessarily think we have more air that needs to deflate. CRT has shown multiple times that DC has had 50+% gains in wages, while most of the country has only had 20-30% wage gains. I think going forward wages will probably do better here than elsewhere since unemployment is lower. So although I think housing will come down some I don't think we will ever get down to the same CS numbers as most other cities.
beerchugger said...I just read what is out there, so if you have articles relating to the bullish market I would LOVE to see them!
Article #1
Article #2
Article #3
Article #4
beerchugger said...I totally agree with you on the inventory issue, and that by far is the strongest evidence I have on why prices will start to rise again. But, and I am not totally sure on the numbers, could one not have made the same comment during 2005-2006 that since inventory was low the market would continue to rise? And we see how that turned out.
Check out the numbers. It does not map 1:1, but when inventory spiked in March to July 2006, that was the end.
I know you believe in Econ 101 - supply vs. demand. Trust your instincts, but keep and open mind and an eye on inventory.
beerchugger said...Plus wasn't a large part of the reason we have this current economic (and housing) crisis is due to poor leveraging by banks and individuals. So how does allowing most of the homes sold to people who only put down 3.5% fix the fundamentals of this problem? Are we not doing the exact same thing as before and allowing prices to stay sky high by allowing easy lending with nearly no down payment (in relation to the 20% that used to be required)?
As a buyer/investor, you have to ask yourself if the banks/government are going back to 20% down. If they ARE, that will be a big problem for housing prices. I don't think they will. I see 3.5-5.0% down with documented income and a healthy credit score.
If you think the government will end the interest expense deduction or kill the $250/$500k capital gains exclusion, I would stay on the sidelines. You'll have to make some educated guesses about government policy.
beerchugger said...I totally agree that the low inventory could be a reason for a rising market. But I have been reading many articles about a "shadow inventory" that demonstrates that many homes are being kept off the market due to price stickiness of individual sellers who cannot (or do not want to) take the hit of selling; and even larger are the banks holding back foreclosures due to them not wanting to take a loss on their Balance Sheets. So you make a strong point, but does the above point not make you wonder why inventories are so low?
There is shadow inventory. Banks are working through foreclosures. We have seen them come to market regularly since I've been paying attention - 8 months.
We don't know what the banks have. They won't tell us. We do know how many bank-owned homes there are in Fairfax County by the county records. Currently there are 1000 bank-owned homes. That is down from 2000 at this time last year.
Is there something going on in the shadows that is going to lead to an inventory glut? I have not seen sufficient proof. I expect foreclosures to continue at a decelerating pace going forward. Primarily because economic conditions are improving. If conditions reverse - unemployment - we may see the # of foreclosures start to rise.
IMHO
beerchugger said...I would agree with you on this one, but as someone who assists with a lot of the people who get jobs in the area, and look for homes, I can tell you that I know quite a few first time home buyers who have jumped at the chance to purchase and get 8k given to them for the deed. Ever see the stampedes at Wallmart to save fifty bucks on a VCR? I think you may be underestimating people's desire to be given $8k to buy at nearly historic low interest rates to buy despite high prices.
Your anecdotal evidence is noted.
pat,
Are we looking at different graphs? How can you possibly state that the DC area still has lots of air? We are within spitting distance of 2002 which puts us back to 1990 (inflation adjusted).
Re teachers...
I think for most teachers class begins sometime between 7-8 AM (meaning they need to show up a little bit before then). So I think teachers can spend a little less on homes because their commutes are easier (although I'm sure it's not fun waking up so early.)
I am pretty sure even I-66 and I-395/95 are relatively congestion free at 6:30 AM. Also, since teachers get about three months off from summer break and other breaks that makes it a little easier to deal with a longer commute the remaining nine months.
Of course, many teachers are married to non-teachers who make a lot more money and that makes it easier for them to afford a home closer-in.
That all being said Beer Chugger is right that it's crazy a couple making $90k cannot buy anything decent.
beerchugger said...I mean let's look at teachers' salaries for example, one of the largest group of civil servants an area can have.
Langley High School is in McLean, VA. It is between Tyson's Corner, VA - the 12 largest business district in the United States - and Washington, DC - the third largest business district in the United States.
Most teachers at that school don't live in the neighborhood.
Herndon HS is near the Loudoun County/Fairfax County line. Same salaries, but they could afford something nice nearby and something nicer if they live in Ashburn or Leesburg - a reasonable commute.
So, it varies.
housebuyer said
I disagree, while the shape of the bubble has been very similar if you notice VA still has kept more bubble gains since 2000 than any other city in CS. I assume this is because the job market is strong here so there is less distressed inventories.
It'd be nice to see the graphs extended back to the 1990s. Maybe DC's was flat while others went up. If so, then we may have kept more of our 2000s gains because the 90s were dormant.
beerchugger said...So while the prices seem to be sticking around, many in the area do not have the means to support these insane prices.
Then who is buying right now?
Beer Chugger, thanks. For me personally, my hesitation is based largely on my not finding a house that I like well enough to buy at the price I want to/can pay, rather than a prediction that houses will go down in price. I also have a house to sell, which complicates matters.
I've been told by Realtors that I'm competing with a lot of buyers who want the same thing - something in the middle - with a very limited supply. At least so far. We'll see what 2010 brings. Meanwhile, the savings account increases...
Robert, at least in Arlington (esp. in the mid/upper ranges), very few people ARE buying them. Arlington's sales have generally been at or near 12 year lows during the past year, except in the lowest ranges and in response to the bribes/interest rates. And correct me if I'm wrong, but elsewhere it's generally the low end that is selling like hotcakes. And meanwhile Arl. prices have dropped all year.
Jeremy said...Robert gets mad when people post national articles and stats to support their opinions, but then he uses numbers for NOVA that include the craziness that went on in Prince William county (and other lower priced areas) over the past two years.
True. I prefer article on the conditions in Washington DC, and NOVA particularly.
Second part about PWC numbers I don't understand. Not saying I didn't/don't, but not exactly sure what you are referring to.
We used to have a large group of friends that lived in Herndon (some still do). I never realized how "indecent" Hiddenbrook and Kingstream and other neighborhoods were. Those places have been selling for around 400K.
Ace said...Robert, at least in Arlington (esp. in the mid/upper ranges), very few people ARE buying them. Arlington's sales have generally been at or near 12 year lows during the past year, except in the lowest ranges and in response to the bribes/interest rates. And correct me if I'm wrong, but elsewhere it's generally the low end that is selling like hotcakes. And meanwhile Arl. prices have dropped all year.
Yes, it seems to move exactly along a sliding scale - absolute lowest priced properties are the hottest and the absolute highest priced properties are the coolest, with everything in between mapping along accordingly. I think we most all agree on that.
At the end of the day,
Dual income families were supposed to be very well off instead they have become more financially stressed then single income families.
Ace said...Right now I think we have a lot of conflicting information about demand. Factors that push it upward:
1) relatively (to other metros) good employment situation and a higher # of relatively high dual income households, which enable more households to afford higher prices
2) the $8K buyer bribe
3) the govt's buying of securities to keep interest rates extremely low relative to historical rates
New jobs create housing demand - rentals or purchases. Are we going to add to the employment base going forward? How much? Is it sustainable? If you have the answers to those questions, you probably could use one of your regression models to predict home prices.
VA_investor and Beer Chugger,
Fairfax Co.'s median home value is far above $285K.
http://www.trulia.com/home_prices/Virginia/Fairfax_County-heat_map/
"Some of the most posh counties in the nation didn't make the cut because their rankings were tainted by outrageous home prices or lengthy commutes. Westchester County, N.Y., home to ritzy enclaves like Chappaqua and Scarsdale, was sunk by a 31-minute average commute time and a median home price approaching $600,000. Fairfax County, Va., suffered a similar fate."
from a July 2008 story, http://finance.yahoo.com/real-estate/article/105336/America%27s-Best-Places-to-Raise-a-Family
Obviously, prices have come down a bit since mid-2008 but certainly not to less than $300K.
It should also be remembered that, in most of the country, two college-educated professionals (maybe with master's degrees) working full-time would be considered in the upper half of households ranked by income. There are lots of Wal-mart workers, one income households, households headed by a mechanic with a part-time library worker spouse, etc. These comprise the *majority* of households in America. It's only around here and in other highly educated communities that people would even think of considering two full-time, fully qualified teachers as average or below in income, status, etc.
So I share the feeling of some others here that it's disturbing that this couple can't afford a nice home (without having to drive a long distance).
Well, pat, they aren't more stressed that one income households where that one earner is unemployed or his/her hours are cut back. No one else to rely on.
Robert, I have no idea. But I'm sure experts are estimating those #s, though I don't have confidence in the real estate center at GMU's predictions, for reasons others here have described so well.
From the Dec 28/Jan 4 issue of Business Week (p. 19):
"The total reutrn on the S&P 500 from the end of 1999 through Dec. 14, incuding dividends, was *minus* 9%. It is on track to lose more in the '00s than it did in the 1930s."
"The increase in U.S. GDP *over the last decade* is the lowest since the Depression (less than 2% per year)."
This is a major reason why move-up buyers can't afford what they once could for the next house, why they aren't buying as many vacation homes, and why the older ones are postponing retirement (if they have that option).
woops, that's "return" and "including."
Ace -
The top 5 on the list you posted about best places to raise a family:
1. Hamilton County, IN
2. Ozaukee County, Wis.
3. Johnson County, Kan.
4. Geauga County, Ohio
5. Delaware County, Ohio
I'm guessing that Washingtonians wouldn't use the same criteria and weighting as those in the article.
Ace said...So I share the feeling of some others here that it's disturbing that this couple can't afford a nice home (without having to drive a long distance).
Is it because I own a home that I don't share this angst? Am I just that selfish? I did go from my mother's basement to TH to SFH to larger SFH. But, somehow I've lost touch with reality in the process?
My wife and I - both professionals - lived in a 16ft wide/7.5ft ceilings TH in Lorton, VA for a couple of years. I remember being happy. I was young. The commute didn't get to me at all. If someone said they were disturbed by my circumstances, I would have said, huh?
I don't believe I said the median house cost 285K. I said median income can afford median price.
With current rates I believe that 3.5X, or even 4X, current salary is perfectly doable. Earlier, I showed that 96K can afford (qualify under conventional ratio's) a piti of $2,400. What is the purchase price for that? What loan does that support?
And why isn't Herndon "decent" enough for these two 20 somethings? Clearly, highly educated Cara and (future lawyer) hubby think their SFH in Burke is "decent".
So, move to Ohio. I bought a house outside Cincinnati in 1981 for 47K. It wasn't in the greatest location. It wasn't very "cool" (bi-level). It wasn't special. It was what we could afford and we liked it alot.
There is a huge disconnect here. People of my generation bought what we could afford and moved up when we advanced in our careers and could afford more.
Robert, it's always interesting how you shift the discussion if the arguments you made previously are refuted or called into question.
No one is arguing that you personally deserve or want sympathy. The original issue was whether are incomes can support the current level of housing prices, and the example someone pointed out was that a well-educated couple with two reasonably high incomes would not be able to afford the median level house. We can obviously each decide about whether that is a cause for concern or one reason to predict that prices may drop further.
VA_investor, you're also attempting to shift the discussion. The issue is not whether housing prices are less affordable (relative to incomes or in an absolute sense) here than in Ohio and practically everywhere else, for that matter (that's simply a matter of fact). And we haven't even considered what the consequences would be if everyone who performed needed services took your advice and moved somewhere else. The issue is whether incomes support the current purchase prices of housing -- can people afford and are they willing to shell out such high proportions of their take home for housing (vs. other things they want or need to buy).
The metric you are using (a la bankrate.com calculators, where households are allowed to spend a high % of gross income, e.g., 33%) allows much higher PITI payments than did the more traditional standard Beer Chugger identified, (and higher home costs, particularly when interest rates are low). But as studies by Elizabeth Warren and others have pointed out, the typical household is now spending a much higher % of income on housing than did past generations. Whether this is wise and sustainable (particularly as interest rates increase) is a reasonable question to debate.
And ps, VA_investor, we also bought a low cost fixer as our first home, but that's really not the point here.
There is a glut of rentals in Maryland. Too many trapped would-be sellers trying to rent, too many repartments. It will take many years to absorb this. Rents are still way below carrying costs for any type of housing. The complex we're in is doing better than most others in MontCo, but still has a very high vacancy rate even with a bigscreen TV giveaway for leases. We've been paying close attention to the rental market. Median income light-years away from median prices here, is it really that radically different in VA? This hasn't historically been the case here even though DC metro area has always been prosperous due to the gov't.
Ace,
The basic question is not being addressed: What is a "decent" house? I sincerely doubt that two highly educated professionals make less than median. Teacher's and other public employee's have for decades found housing expensive in parts of this region.
p.s. is no one going to address the bubblemeter graph of DC (going back to the '80's) or should we just accept pat's assertion that it shows much "air" to lose.
The idea that "Gen Y" has unrealistic expectations is not worth debating. It's been noted over and over that housing, education and other essentials have way exceeded inflation and that young people make less in real wages and have less buying power than their parents, in spite of greater education, dual incomes and fewer children had later in life. Read Elizabeth Warren's books.
I consider that attitude of blaming the generation that is getting soaked to be some kind of weird irrational guilt/backlash thing.
btw,
The median is 324,700 for this region as of 3rd qtr 2009. Clearly affordable to the median income.
324K vs 431K in 2006.
Cara said...
"SFHs in "good" areas for under $375k will find plenty of support so long as interest rates remain under 6%. That opening tier of the SFH market is attainable even to two teachers or one person with an excellent job."
Hi Cara,
Very informative post, thank you. It was the paragraph that you wrote above that in particular caught my interest. Please let me know what area around here sells homes regularly for, on average $375k; because that is what I have been searching for the entire time I have been looking.
And I hope we are not talking places where you have to look for 100 days over 50 homes and finally got a great deal. I mean where if you look around there the homes run you average around $375k. And it does not have to be a huge home either, just the simple 3beds, 2 baths, small plot of land starter home.
If said place does exist it would ease a lot of my concern over this market. The largest problem I have right now is that there does not seem to be a "suburb" within reasonable driving distance to the major job centers to support the majority of this areas people comfortably. Yes people like you, me and most of the board from what I read can support the homes around here, we seem to be very high income earners. But the fact is that not everyone can earn 100-150k as an individual (couples earning 200-300k), many if not most around here earn significantly less than that.
So please let me know, because your answer would really make me feel much differently about the entire situation.
Merry Christmas to you too!
Robert said...
I absolutely love how you back up what you say with so much evidence, it's very compelling. And you know what, I feel that you are spot on that if the recent legislation that has been passed will be paid for through tax increases and not significant spending cuts I can easily see our new "semi-socialist" state creating a HUGE job market around here (as it already has, but even bigger).
Gives me something to think about, because I have seen enormous growth in nearly every sector the government contracts out to, from IT - Health. If that keeps up I can easily see this becoming a mega job center extending all the way out to West Virginia, with homes near the major job areas being valued like they are in and around Manhattan island in NY...
Catherine said...
"The idea that "Gen Y" has unrealistic expectations is not worth debating. It's been noted over and over that housing, education and other essentials have way exceeded inflation and that young people make less in real wages and have less buying power than their parents, in spite of greater education, dual incomes and fewer children had later in life. Read Elizabeth Warren's books.
I consider that attitude of blaming the generation that is getting soaked to be some kind of weird irrational guilt/backlash thing."
That last sentence is fantastically stated. Gave me a good laugh, thank you!
And it sounds like I have to check out Warrens books asap.
Va_Investor said...
"p.s. is no one going to address the bubblemeter graph of DC (going back to the '80's) or should we just accept pat's assertion that it shows much "air" to lose."
I would love to see this Graph. Can you please link it up?
One more time:
Beer Chugger's example about the teaching couple was in Fairfax County, not the region as a whole.
Beer Chugger didn't claim the hypothetical couple is making significantly less than the median income. He suggested they were an example of a couple making something close to the median but not able to afford the median priced house, if you use his traditional standard of 2X median income--or even 3X median income (e.g., 3 X approximately $100K = $300K).
Per NVAR's November report (you can download these reports in .pdf form), the median sold price for a single family detached home was $499000, well over the 3 X standard and approaching 5 X income. Prices for condos and townhouses (SF attached) were substantially lower ($210000 and $327000, respectively), but whether you include them depends on your definition of "decent" and whether the median income couple should have to settle for something that is merely "decent" or whether merely "decent" is something for people who earn substantially less than the median but above poverty level, for example.
Since those topics have been discussed a lot on here previously, I will leave it to those seeking a first house to discuss it again, or those interested in looking up previous discussions to do so.
Re: the FFX solds, it's not clear to what extent the sold homes are representative of homes in FFX Co. in general, since sales at the low end may be overrepresented due to the buyer bribe and low interest rates. Maybe this info is available on another website.
just to clarify, the #s I posted above were for FFX Co.
Also, VA_Investor, you may not care to disclose the price of your first house relative to your household income but I'll disclose mine: our first house cost less than 1.5 times our income; it was a single family home with a small lot, 3 BR 1.5 baths, 1800 square feet approx., and within reasonable commuting distance and in a very good school district. My point (and that of some other folks here) is that we did not have to stretch as much as a similar couple of today --nowhere close to it-- even with the relatively high taxes in that community and the fact that we had to spend some $ on fixing up.
Ace said...
"Jeremy, I just tried your suggestion, e.g.,
http://franklymls.com/default.aspx?m=R&l=900K&h=1200K&s=arlington+detached
but rather than getting houses from 900 to 1200, the results are houses 125 to 600."
Sorry about that. I tested it last night with 500k to 600k and substituted 625k. I saw listings for 617k and thought it worked, but I forgot frankly automatically adds 5% to your range so that you don't miss out on a home just outside it.
Robert said...
"Second part about PWC numbers I don't understand. Not saying I didn't/don't, but not exactly sure what you are referring to."
I am referring to your quote, "At this time last year at this time we saw 12,000 houses for sale in NOVA and we ran up a 20% increase in prices." You didn't provide the source, but if the number wasn't just pulled out of thin air then the source must have included PWC and far out Loudon County. I have a hard time believing that Fairfax County had a 20% increase in prices since last year, since everything I've looked at has come down 10-15% since last year.
Of course if you just pulled your 20% number out of thin air because it sounded right to you, then I understand your confusion about my disbelief of that number.
Beer Chugger: You should buy where Cara bought in Springfield. The prices there were depressed because of all the roadwork around the Springfield bypass. The work is finished now so get in before the prices go up.
"I consider that attitude of blaming the generation that is getting soaked to be some kind of weird irrational guilt/backlash thing."
Well said... for some reason certain people really don't like the idea that the younger generation does not have it as good as their parents did. I have had more than a few discussions with people/couples in their mid to late 20s on the same general theme:
"How is it that we are a dual income college educated family who has put off having kids so that both parents can prioritize their careers and yet we still feel like we are barely keeping up with rising costs?"
This is not an illusion and it is not some kind of "Whiny Gen X/Y" issue as some would like to portray it.
aren't down payment and access to credit the reasons why 'rental parity' never works beyond lower-end housing market? those without both are never part of the 'demand' (post-bubble era) to buy, while those who do are both potential renters and buyers.
in a higher income area there's higher demand (more qualified people) for rental housing than buying. also income is local, while down payment and access to credit are national.
my conclusion: rent increases do not equal to sales price increases, and vice versa.
beer_chugger,
Right now, Burke and Springfield are on the cusp of $375k, most listings for starter SFHs are in the $400-$450k range but wait and see what they sell for. $375k is the price point at which I predict they will bottom, not necessarily where they are now.
frankly 3bdr,4bdr, 22015,22032,22039,22151,22152,22153 detached active
109 actives over 40 LISTED under $450k, Yes, most of the stuff under $400k list is questionable in one way or another. But check out the stuff in the 400-425 price slot. There's some not too bad stuff in there. And you don't know that they won't take an offer of $375k until you offer it. And this is the dead of winter. The worst possible time for selection (normally).
http://franklymls.com/FX7213761
http://franklymls.com/FX7156610
http://franklymls.com/FX7158143
http://franklymls.com/FX7220187
http://franklymls.com/FX7172945
All decent SFHs in commutes that are good for some (depends where you are going), that are affordable to the $90k income level at today's rates. (and would still be affordable to them at 6% if they put down 10-20% not 3.5%).
Make sure to also check out Southern Springfield/Lorton in the South County High School District. The Hayfield District has too much cachet from proximity to Kingstowne to be as low as one would like, but a lot of South County is very affordable. It all depends on commute to where. Commute to pentagon, alexandria or downtown and the F/S VRE is a straight quick shot with plenty of parking.
To continue...
Right now the listing in the 400-450 range in this area (sorry, the only one I'm familiar with) are basically hoping that much of the $8k/sub-5% interest rate/summer bump is sustained. But it won't be. And some of these sellers will sell anyway. When, on the week between Christmas and New Years there's a selection of easily 10 homes worth taking a serious look at? I'd call that a pretty decent selection. Notice the gap in quality between below and above 400k. Below 400k there are too many shorts, and too many sitting directly on major local roads. The sellers practically HAVE to list over $400k just to indicate the quality level and location level of the home. That doesn't mean they won't accept a lower bid. Mentally for November to early February you need to take 5% off every list, that's 20k off right there. And 10% off is not out of the realm of possibility. How do you think sale prices drop? Not by lists, I'll tell you that much. By comps from sellers taking under list.
Now the real worry for this market segment is if the stuff that's currently at $500k and up has to come down into the $400k bracket to find buyers. The cram-down could be rough. But I still think if it's in a good school district and has a great commute for you, then $350k is the bottom for reasonable sized, well-maintained SFHs in FFX County. At least while 6% interest rates last. And they're not going away until after inflation has eaten away at some of the price disparity anyway.
For some potentially up and coming neighborhoods with good values that tbw thinks are going to go downhill check out Rose Hill and other greater Alexandria areas. I say that simply because they are amongst the only truly affordable pockets left in FFX county, that they will be rediscovered by young families.
Ace,
We spent a little over 1.5x income on a house in foreclosure in Ohio at 12 or 14% interest rates. We were 22 and had a negative net worth. We moved here in 1981 and could afford (barely) twice our income at 14%. This would have bought us a 3/1 in Pimmit Hills, a very sketchy area at the time.
We rented for a year or two and bought an estate sale home in (it turned out) the bad part of Silver Spring (inside the beltway, adjacent to PG County). We got an ARM but we were waiting to move until I got out of grad school (VA in-state). We never moved to MD and this became a rental. In the meantime, we were offered a sweatheart deal at the Rotunda where we bought and lived for two years. Then it was off to Falls Church were we bought a fixer-upper for about 2X our income and got a 1yr arm. We kept the SS house and the Rotunda condo as rentals.
In the next 2 yrs we sold the FC House for twice what we paid, we bought and "flipped" a fixer down the street, we put a deposit on a to-be-built TH in Tysons and bought a new build house (off blueprints)in Dunn Loring.
We sold the TH after owning it two weeks and 1031'd into a duplex in West Falls Church, we bought a fixer in Springfield for a rental, we bought a week-end place and sold the house in Dunn Loring and bought a TH in Tysons. We got pregnant and bought a house in Vienna, keeping the Tyson's TH as a rental. We bought 2 other rentals in Falls Church and a couple in Franconia.
At 32, we bought a different weekend place (keeping the old as a rental) and I stopped working. At 35, we bought a house in Herndon and kept the Vienna house as a rental. The next year we bought 2 places in Naples Florida.
We continued to buy, sell and 1031 homes throughout the '90's. I flipped foreclosures for a couple years (2000 and 2001) and we bought one in early 2002 that we decided to move into to. In the meantime, we had bought a couple more places for rentals. We bought (via 1031) in 2003, 2004, and 2005.
We started buying again in late 2008.
I know this is way more info than you asked for. I'm not your average "housebuyer" and, really, never have been.
When we were renting in Tyson's in the very early '80's, I remember driving down 123 into Vienna enroute to the Giant. I'd look to the right at that community around the golf course and wonder if we'd ever to able to live in such nice homes. Two Ivy League grads.
There have been far more transactions, but I don't feel like stressing the old brain cells.
"I know this is way more info than you asked for. I'm not your average "housebuyer" and, really, never have been."
Uh huh... don't worry, you have told us this over and over again.
...besides stressing once again how special you are, what was the point of that story?
Oh, Dear Leroy,
The point is two-fold.
What you are facing is nothing new.
The Housing ladder is a viable proposition.
btw,
My kid will graduate with an expected income of 40-60K. I can find him something today that is perfectly decent and affordable. A place that I would live in myself. I am looking as he wants to diversify.
Um, you do realize that just rattling off your little story doesn't do anything to establish that the same approach would work the same way today don't you?
We all know the whole "housing ladder" approach works well when housing prices are rising and interest rates are falling. You had the good luck to buy at a time when both were taking place.
You came out of college debt free, bought at 2x income just before a major run-up in prices and kept buying as interest rates fell.
From the sound of things you never had much of a long-term plan and just started buying houses when the opportunity presented itself. If you had graduated in 2004 that same approach would have yielded very different results.
In summary, you are no different from the type of "investor" that happened to have the good luck to bet every penny on a lucky pick and now tries to convince everyone they meet to follow their "strategy."
"I always liked Apple computers so I have been putting my entire savings into APPL stock since 1981 and now I am rich. That just shows APPL is where your retirement should be!"
yep leroy,
Just dumb luck. There was no plan to have ten properties by 30, stay home with a kid or two and work (or not) on "my business" at my leisure. It's not really even a business is it?
Hey, I am going from the story as you tell it.
The way you tell it you got it into your head to be a real estate investor from HS and just started buying properties as fast as you could while your husband supported you.
Like I said, you are the guy that bet huge on what turned out to be a lucky pick.
What you haven't been able to do is make a decent argument for how that might work the same way again.
You were buying during a time of rising housing prices and falling interest rates. What do you want me to do? Pat you on the back?
You keep trying to act like you had it SOOOO hard, but that isn't how your story reads at all.
"A lucky pick"
yep. That's me leroy. No skills involved whatsoever. Just dumb luck. A fluke, even! Could never be repeated by me today. Whatever helps you.
I would suggest that many here could go out now and buy ten rentals and do the exact same thing. Why couldn't they? The numbers work.
Oh, and my husband supports me? I could add up his entire earned salary throughout his career and the RE Equity would exceed it. Chew on that.
You were buying during a time of rising housing prices and falling interest rates. What do you want me to do? Pat you on the back?
I'm a third generation NOVA homeowner. My mother's parents moved to Arlington after WWII. Each generation built up enormous equity. Interest rates weren't always falling.
I don't think the story is done.
"yep. That's me leroy. No skills involved whatsoever. Just dumb luck. A fluke, even! Could never be repeated by me today. Whatever helps you."
Hey, I can only go based on what you have shown here. You go on and on and on about all your experience and expertise(and do so love to cite your resume and various claimed accomplishments) but when it comes down to advice? You seem to come up very short. Generic blather about it always being a good time to buy and there not being a bubble...
"I would suggest that many here could go out now and buy ten rentals and do the exact same thing. Why couldn't they? The numbers work."
Of course you would suggest that. That is the whole point. You don't seem to have any ability to appreciate just how lucky your timing was. You could hardly have picked a better time to have bet every dime on real estate but you don't even seem to understand that. (or I think you prefer not to as it would undermine your persona as a brilliant investor)
Don't get me wrong, I think it is perfectly possible to make money by buying rentals today. The numbers DO make sense in some parts of the area, but to expect similar results starting today as you enjoyed by starting in the early 80s? Don't count on it...
"Oh, and my husband supports me? I could add up his entire earned salary throughout his career and the RE Equity would exceed it. Chew on that."
Oh, So your brilliant investing was able to support your family when you stopped working at 30 or whatever it was? Who was paying the bills?
poor, poor Leroy.
Dumb luck, lucky timing, picked the right lotto number (I mean apple stock)...even married lucky!
Poor little Leroy.
Keep up those thoughts buddy, you'll go far in life!
So I guess that is you pretty much admitting everything I said is true then huh?
It really is funny watching you try to convince the world what a genius you are. Nobody cares, but you just can't seem to accept that.
It is great that you were able to make use of the advantages life gave you, but don't try to convince us all that you are some kind of hard luck story winning against impossible odds.
"Keep up those thoughts buddy, you'll go far in life!"
You don't have to worry about me :P
Just because I am not on here posting every day about what a huge huge huge success I am doesn't mean I would have nothing to write about if I wanted to.
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